Exporter pain shows monetary policy not working

Monday 13 June 2011, 7:52AM
By David Cunliffe

Today’s all-time high for the Kiwi dollar against the US dollar on the back of yesterday’s Reserve Bank statement shows our non-agricultural exporters will continue to be in serious trouble without appropriate monetary reform, say Labour’s Finance spokesperson David Cunliffe and Associate Finance spokesperson David Parker.

David Cunliffe said that although the Reserve Bank can technically intervene in currency markets, its reluctance to do so even when the Kiwi dollar is setting record highs shows the balance of monetary policy is not right.

The Kiwi dollar peaked at US82.97c against the US currency early today, its highest level since it was floated in March 1985, before falling back slightly. The peak followed yesterday’s Reserve Bank statement leaving the OCR unchanged at 2.5 per cent, but predicting it will need to lift to offset a predicted rise in inflation as GDP picks up.

David Cunliffe said: “While the Reserve Bank is significantly more bullish than Treasury, Labour has been advocating for some time a change to the Reserve Bank Act to promote a better balance between anti-inflation, export and growth objectives.”

David Parker said: “A broader range of tools are needed for the bank to achieve this balance.

“It is not all the Reserve Bank’s fault. It has become clear in recent weeks that the Government is borrowing an astounding $5 billion more than it needs to. This is putting more pressure on our currency. Once again the Government is favouring its own interests over the interests of our non-agricultural exporters.

“Non-agricultural exporters are withering and jobs are being lost in the face of an ever-appreciating exchange rate as the Kiwi dollar is becoming one of the highest-traded currencies in the world.”

David Cunliffe said the Reserve Bank should be actively considering selective intervention in currency markets to signal its unease at the current levels of the dollar. “Such decisions must rightfully remain the prerogative of the bank, however,” he said.

“Labour is committed to a high growth, job-rich, export-led recovery. Monetary policy must play its part in achieving this.”